It’s a Plan, Not Your Straitjacket

You may have spent weeks or months crafting your financial plan. It may have served you well as you worked to realize your financial goals, but beware a common trap that snares some investors. Your plan isn’t sacred. It's a living document, sure to be in need of adjustment and redirection every so often.

Your plan’s mission is to act as a kind of interactive roadmap to financial success – not to confine you to inaction, as a straitjacket. You can and should make changes if you believe they're warranted or if your goals have changed.

Before you decide to make them, however, you’ll need to evaluate your plan to determine how it stacks up against the 2010 financial markets and how well it reflects your evolving financial goals.

Realism and Fantasy

When reassessing your plan, make sure you’re being realistic about your goals and your ability to meet them.

Does your current financial status coincide with what you expected it to be? If it’s better, should you be investing more for your future? Or do certain aspects of your plan relate more to earlier fantasy than reality and now need to be brought into focus?

Ask yourself whether your plan is on track to achieve what you intend – and stay grounded as you make the assessment.

Reasonable Change

Even if your savings rates and goals turn out to be satisfactory, continue your assessment to include your lifestyle changes and requirements. Is your tolerance for risk – for the markets generally and for your portfolio’s holdings in particular – at the same level it was before the market turmoil of the past two years?

If not, what changes should you make that would allow you to sleep better? Be aware that there is no such thing as risk-free investing – inflation probably will see to it that the $1,000 in cash you bury in a vault in the back garden will be worth less in a year or two – but investments offer varying degrees of risk.

Be sure you know what your holdings are and how risky they may be, then make whatever changes are needed for you to achieve your comfort level, which may be different from what it was a few years ago. You may need to diversify differently, adjust your asset allocation or, within those assets, diversify differently.

There are many areas to assess, including your level of debt and types of debt. Are you carrying the type of debt that acts like an albatross on your financial plan? And does your plan provide for enough readily available cash for immediate needs?

Your plan was established as an asset to be watched over and shepherded along as you live your life. It will serve you best if you keep it elastic and changeable. Treat it as untouchable and it could turn into a trap more likely to impede your financial success than to enhance it.

If you believe your financial plan needs adjusting, please don’t hesitate to call me.

Look Before Leaping in Deciding Retirement Relocation

Long before your actual retirement day arrives, you may be thinking about relocating to a place with warmer temperatures, lower taxes, more golf courses or tennis courts, or other amenities you expect will enhance your retirement years.

Retirement experts say 50% to 60% of Americans approaching retirement expect to relocate. However, retirees with strong local or family connections may make moves they later regret or feel obliged to reverse, once they find themselves in unfamiliar territory, far from the hub of what had been their lives for many years. Others find it liberating to migrate to a balmier climate, where outdoor activities are available year-round and highways are generally snow- and ice-free.

Financial Sense

Aside from personal issues that may encourage or discourage relocating, making financial sense of retirement can be a strong motive. Nine states – Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming – have no income tax (though Tennessee and New Hampshire do tax dividends and interest).

Five states – Alaska, Delaware, Montana, New Hampshire and Oregon – levy no sales tax, while five others – Alabama, Arkansas, Louisiana, Mississippi and West Virginia – are said to have the lowest overall real estate taxes.

In thoughtfully investigating retirement relocation possibilities, consider such important questions as these:

• Will you be too far from children and grandchildren?
• Are you and your spouse in agreement?
• Will you be downsizing your living space?
• Will you buy or rent?
• Will you have ample opportunities to explore your interests in your new location?
• What natural disasters – hurricanes, floods, tornadoes, earthquakes – could you face at your chosen destination?
• Will you have access to all the resources you expect to need?

Whether to relocate after you retire is a personal decision, but it is wise to consider all the possible positive and negative consequences of making a move. If you're unsure how to proceed, I’ll be happy to assist. Just give me a call.

Financial Planning:
Early IRA Contributions May Boost Retirement Savings Total

Being reminded to make early contributions to your IRA every year may seem like being told to eat your vegetables. If you can get past that, however, the idea can work in your favor.

Just as your health may benefit from vegetables, your retirement savings account totals may be significantly improved if you contribute early. Fund your account with $5,000 ($6,000, if you’re 50 or older) every January, and, if it grows at an 8% annual rate, compounded monthly, you’ll have $263,090 at the end of 20 years.

That’s nearly $10,000 more than the $253,716 you would have if you contribute that same $5,000 systemically over a 12-month period. And it’s $25,746 more than the $237,344 you would accumulate if you wait until mid-April of the following year to make your annual contributions. The difference is the power of tax-deferred compounding.

Granted, these hypothetical figures are for illustrative purposes, don't represent an actual investment or reflect any associated fees that would reduce total return. The point is that contributing early gives your holdings the best chance to accumulate dividends and interest (monthly, quarterly or however it may be reinvested), plus maximum time to grow in value.